Two at Knoll Sued Over Sale of Subsidiary

By SARAH BARTLETT

Published: November 3, 1989

The United Technologies Corporation and Gibbons Green van Amerongen, a New York investment firm, yesterday filed a lawsuit against two top executives of Knoll International Holdings Inc., the office products company, seeking damages of $173 million.

The suit charges that the two executives fabricated important information about the financial health of a Knoll subsidiary, the Sheller-Globe Corporation, before selling the auto parts subsidiary in December to a joint venture formed by United Technologies and Gibbons Green.

The suit contends that if the joint venture had known the true state of Sheller-Globe's finances, it ''would not have paid the sum it did for the shares of Sheller-Globe, and most likely would not have purchased the shares at all.'' The group acquired Sheller-Globe for $700 million.

The two executives cited in the suit, which was filed in Federal District Court in Manhattan, are Marshall S. Cogan, Knoll's chief executive, and Robert H. Nelson, the company's chief financial officer. The two are accused of violating both Federal securities laws and common law. Suit Called Publicity Stunt

''Their allegations are nonsense,'' said Philip N. Smith, Knoll's general counsel, who dismissed the lawsuit as a publicity stunt intended to deflect criticism from Wall Street deal makers that the joint venture overpaid for the company.

The central contention of the suit is that before the sale, Mr. Cogan and Mr. Nelson knew that Sheller-Globe's profits were steadily deteriorating yet did not convey that information to potential buyers. At the time of the sale on Dec. 9, the complaint contends, Knoll's top executives knew that the projected operating profits for the year were overstated by about $15 million. In the end, the company's actual operating profits for 1988 were $29.6 million, considerably below the $48.1 million listed in the October stock-purchase agreement.

Mr. Smith of Knoll said that Gibbons Green and United Technologies had the company's operating results through October and that the buyers' accountants, Peat Marwick Main & Co., had access to all Sheller-Globe's financial statements before the closing of the deal. Moreover, the Sheller-Globe operating managers who compiled the company's financial results later invested with Gibbons Green and United Technologies in the deal. Manipulation Charged

The complaint filed yesterday charges that Mr. Cogan and Mr. Nelson ''determined the number they wanted prospective bidders to use as the basis for the purchase price, and then worked backwards to manipulate the data to reach that predetermined number.''

In ''working backwards,'' the suit contends that Knoll deferred making payments on invoices, and did not record $30 million in accounts on which payments were due. The executives, the complaint states, used a variety of devices to inflate the amount of working capital the company appeared to have.

United Technologies and Gibbons Green contend in the suit that when they acquired the company in December, instead of finding $14 million in cash, as they had expected, they found that the company's bank accounts were overdrawn by $7.5 million, ''necessitating an immediate cash infusion.''

Mr. Smith disputed that contention, saying that one of Sheller-Globe's own financial filings stated that there was $11 million in cash and equivalents in the company at the time of the acquisition.